South Sudan Halts Oil Production. Will this be the Start of an ‘Oil War?’

Photo: Port Sudan in the north, where oil is exported. (Wikimedia Commons)

After African Union-sponsored talks in Addis Ababa between the governments of Sudan and South Sudan failed to end in an agreement on oil exploitation, South Sudan’s oil minister announced Sunday that the country has halted oil production.

This most recent row began in mid-January, when Khartoum admitted to unilaterally confiscating oil exports to compensate for what it claimed were unpaid transit fees. The two Sudans are dependent on each other in the exploitation of oil, as two-thirds of the former Sudan’s reserves are now in South Sudan and the infrastructure needed to transport, refine, and export the oil is in the north.

The two countries have been unable to come to an agreement on what the transit fees should be, but this didn’t stop Khartoum from demanding them or Juba – until now – from producing and selling the oil. By January 15, Khartoum was demanding “$1 billion for transit fees since July” as well as “a pipeline fee of $36 a barrel, up from an initial demand of $32. Analysts have said Sudan’s demands were 10 times in excess of international norms usually based on a per-mile basis.” Khartoum is reported to have seized $815 million in oil revenue, which it says it has “confiscated” in the absence of due payment of fees and which South Sudan is calling theft of oil revenue.

While the immediate dispute began in mid-January, it has been a long time in the making and totally predictable. The 2005 Comprehensive Peace Agreement stipulated that the north and south were to share the income from oil production 50/50 from July 2005 to July 2011. In January 2011, the south voted overwhelmingly for independence in a referendum, and celebrated its official birth on July 9, 2011. The day before official independence, after a year of talks, the north and south negotiating teams still had not come up with an agreement on oil.

As had been proposed at the time of negotiations last year, on January 25 South Sudan reached an agreement with Kenya on the construction of a pipeline to Lamu, which it says should take about a year to complete – though analysts put the timetable at closer to three years. Both countries are highly dependent on income from the exploitation of oil; Juba reported last year that oil accounted for 98% of South Sudan’s budget. In the meantime, the row has exacerbated existing political tensions between the two countries.

Last year I wrote on UN Dispatch that in the negotiations over oil, much more than oil revenue is at stake. The two Sudans have also been unable to come to an agreement on other issues not fully negotiated in the Comprehensive Peace Agreement, such as border demarcation, citizenship, and the national debt. With both countries’ economies struggling as it is, cutting the lifeline of oil revenue is likely to make these other sources of tension that much more potent. Even if South Sudan could be economically independent tomorrow, it would not mitigate the risk of a return to war.